INDIA’S biggest private company, Reliance Industries (RIL), unveiled its first ever drop in quarterly sales in around six years and its first profit decline in three years on Thursday, hit by a steep fall in petroleum product margins in what its chairman called “one of the most challenging” periods faced by the company.
The Mukesh Ambani-controlled RIL, which runs one of the world’s biggest oil refineries and is also among the world’s biggest petrochemicals producers, reported a 8.75% drop in net sales for the three months to end-December to Rs 31,563 crore – the first decline since the first quarter of 2002-03. Its net profit, excluding exceptional items, fell 9.8% to Rs 3,501 crore during the period compared with Rs 3,882 crore in the year-earlier period, ahead of expectations. ETIG had expected RIL to announce a net profit of Rs 2,739 crore.
Refining margins likely to remain flat till 2010-11
“This was one of the most challenging quarters for Reliance with volatility in prices and margins. Producers and consumers are coming to terms with slower global trade and economic outlook. Reliance performed commendably in this environment, with high operating rates. We also reached an important milestone in start up of the RPL refinery,” said RIL chairman and managing director Mukesh Ambani.
RIL’s keenly-watched gross refining margins (GRM) — the difference between the value of petroleum products and the price of crude oil — for its 660,000 barrel-a-day refinery in Gujarat came in at $10 per barrel, substantially lower than the corresponding period’s $15.04 per barrel, but some $6.4 per barrel higher than the region’s benchmark Singapore complex.
Worldwide refining margins for refineries fell during the December quarter, as the global economic slowdown brought down prices of petroleum products such as gasoline and naphtha. The slump in demand forced some of the world’s big oil companies, including Exxon Mobil, to shut units for seasonal maintenance.
The company, which has been maintaining GRMs better than the Singapore benchmark, said it managed to sustain its margins “primarily on the back of efficient sourcing of crude oil, ability to produce globally accepted products and flexibility in its crude bucket”.
“RIL’s performance exceeded our expectations. This is mainly driven by higherthan-expected revenues from the petrochemical segment and better GRMs. RIL has surprised the market on the upside, hence would have positive impact on the market,” said Amitabh Chakravarty, president for equities at Religare Capital Markets.
RIL shares ended 1.21% at Rs 1,132.95 on Thursday ahead of the results, which were announced after the market closed. The stock slipped 37% in the December quarter, underperforming a 25% drop in the BSE Sensex and a 33% loss in the sector index during the same period.
Analysts said RIL’s earnings drop was temporary and would be reversed in the fiscal fourth quarter, when it is due to start producing 30-40 million cubic metres of natural gas a day in the second half of February. The company’s earnings and sales will see benefits from its new refinery which was commissioned on December 25.
Refining margins are, however, likely to remain flat till 2010-11 due to overcapacity and slower demand growth amid a global economic downturn. RIL’s refinery is almost entirely export-focussed, leaving the company particularly exposed to a drop in global demand for petroleum products.
The net profit fall would be steeper at 57%, if exceptional gains of Rs 4,733 crore in December 2007 — booked by RIL for selling shares of its subsidiary Reliance Petroleum (RPL) — were taken into account. RIL had posted net profit of Rs 8,079 crore, including exceptional gains, in December 2007 quarter.
RIL’s operating profit margins stood at 17% in the quarter, little-changed from 16.9% in the year-ago period, but higher than the 14.6% achieved in the first six months of the year. Interest outgo was higher at Rs 663 crore compared with Rs 241 crore because of a weak rupee. A big chunk of the company’s debt is dollar-denominated.
RIL’s refining business contributed Rs 1,881 crore to its profit before tax of Rs 4,225 crore during the quarter, while the petrochemicals business contributed Rs 1,657 crore.
The company’s cash reserves jumped to more than Rs 28,500 crore, boosted by the conversion of 12 crore equity warrants, which brought in over Rs 15,000 crore to the company in October. RIL said 95% of the reserves was invested in fixed deposits, and the rise in the deposits helped it expand its other income during the quarter to Rs 663 crore from Rs 241 crore in the year-ago period.
For the nine months ended December, RIL’s net profit, excluding exceptional items, increased by 3.4% to Rs 11,733 crore, while its revenues rose 21% to Rs 121,698 crore. Despite a 3.4% rise in refinery throughput to 7.86 million tonnes during the quarter, revenues from this segment dipped 17%. Production of most of its petrochemicals and polymers fell 3%-6% during the quarter, but the fall in revenues was less than 1%. The refining and petrochemicals segments account for 97% of the company’s total turnover. RIL said it has spent Rs 110 crore during the quarter at its Patalganga plant to finance a voluntary retirement scheme for 430 employees.
The Mukesh Ambani-controlled RIL, which runs one of the world’s biggest oil refineries and is also among the world’s biggest petrochemicals producers, reported a 8.75% drop in net sales for the three months to end-December to Rs 31,563 crore – the first decline since the first quarter of 2002-03. Its net profit, excluding exceptional items, fell 9.8% to Rs 3,501 crore during the period compared with Rs 3,882 crore in the year-earlier period, ahead of expectations. ETIG had expected RIL to announce a net profit of Rs 2,739 crore.
Refining margins likely to remain flat till 2010-11
“This was one of the most challenging quarters for Reliance with volatility in prices and margins. Producers and consumers are coming to terms with slower global trade and economic outlook. Reliance performed commendably in this environment, with high operating rates. We also reached an important milestone in start up of the RPL refinery,” said RIL chairman and managing director Mukesh Ambani.
RIL’s keenly-watched gross refining margins (GRM) — the difference between the value of petroleum products and the price of crude oil — for its 660,000 barrel-a-day refinery in Gujarat came in at $10 per barrel, substantially lower than the corresponding period’s $15.04 per barrel, but some $6.4 per barrel higher than the region’s benchmark Singapore complex.
Worldwide refining margins for refineries fell during the December quarter, as the global economic slowdown brought down prices of petroleum products such as gasoline and naphtha. The slump in demand forced some of the world’s big oil companies, including Exxon Mobil, to shut units for seasonal maintenance.
The company, which has been maintaining GRMs better than the Singapore benchmark, said it managed to sustain its margins “primarily on the back of efficient sourcing of crude oil, ability to produce globally accepted products and flexibility in its crude bucket”.
“RIL’s performance exceeded our expectations. This is mainly driven by higherthan-expected revenues from the petrochemical segment and better GRMs. RIL has surprised the market on the upside, hence would have positive impact on the market,” said Amitabh Chakravarty, president for equities at Religare Capital Markets.
RIL shares ended 1.21% at Rs 1,132.95 on Thursday ahead of the results, which were announced after the market closed. The stock slipped 37% in the December quarter, underperforming a 25% drop in the BSE Sensex and a 33% loss in the sector index during the same period.
Analysts said RIL’s earnings drop was temporary and would be reversed in the fiscal fourth quarter, when it is due to start producing 30-40 million cubic metres of natural gas a day in the second half of February. The company’s earnings and sales will see benefits from its new refinery which was commissioned on December 25.
Refining margins are, however, likely to remain flat till 2010-11 due to overcapacity and slower demand growth amid a global economic downturn. RIL’s refinery is almost entirely export-focussed, leaving the company particularly exposed to a drop in global demand for petroleum products.
The net profit fall would be steeper at 57%, if exceptional gains of Rs 4,733 crore in December 2007 — booked by RIL for selling shares of its subsidiary Reliance Petroleum (RPL) — were taken into account. RIL had posted net profit of Rs 8,079 crore, including exceptional gains, in December 2007 quarter.
RIL’s operating profit margins stood at 17% in the quarter, little-changed from 16.9% in the year-ago period, but higher than the 14.6% achieved in the first six months of the year. Interest outgo was higher at Rs 663 crore compared with Rs 241 crore because of a weak rupee. A big chunk of the company’s debt is dollar-denominated.
RIL’s refining business contributed Rs 1,881 crore to its profit before tax of Rs 4,225 crore during the quarter, while the petrochemicals business contributed Rs 1,657 crore.
The company’s cash reserves jumped to more than Rs 28,500 crore, boosted by the conversion of 12 crore equity warrants, which brought in over Rs 15,000 crore to the company in October. RIL said 95% of the reserves was invested in fixed deposits, and the rise in the deposits helped it expand its other income during the quarter to Rs 663 crore from Rs 241 crore in the year-ago period.
For the nine months ended December, RIL’s net profit, excluding exceptional items, increased by 3.4% to Rs 11,733 crore, while its revenues rose 21% to Rs 121,698 crore. Despite a 3.4% rise in refinery throughput to 7.86 million tonnes during the quarter, revenues from this segment dipped 17%. Production of most of its petrochemicals and polymers fell 3%-6% during the quarter, but the fall in revenues was less than 1%. The refining and petrochemicals segments account for 97% of the company’s total turnover. RIL said it has spent Rs 110 crore during the quarter at its Patalganga plant to finance a voluntary retirement scheme for 430 employees.
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